A commentary on the The U.S. Federal Reserve policy statement from Rick Rieder, BlackRock Chief Investment Officer of Fundamental Fixed Income

The Federal Reserve decided to leave interest rates unchanged, signaling the U.S. economy isn’t quite ready to digest an increase in borrowing costs. Already, however, attention is turning to when the Fed will raise rates. Whether that happens in October, December or next year, it’s important to keep a few things in mind:

The timing of the next increase is far less important than the pace of coming rate hikes, and the Fed is on record as saying it will be measured in its approach. In other words, even when the Fed does start to tighten, rates will likely remain low for an extended period of time.

In the near term, investors should be thoughtful about the credit quality of what they own, as the six-year cycle of easy monetary policy continues, for now. We see strong signals suggesting a rate hike before the end of the year is highly probable.

Over time, longer-term and structural factors may have more impact on the economic landscape than a small increase in interest rates. Technological innovation and demographic trends, for instance, are playing an increasingly larger role in economies and financial markets around the globe.

The Fed statement, while generally in line with prior announcements, increasingly recognizes that recent labor market improvement and other signals suggest that the economy is ready for an initial lift-off from current policy rates before year end. That is also confirmed by Committee rate projections, as most participants expect a rate rise in 2015.

It is critical to recognize that while many describe the initial rate move as a tightening of policy, and of financial conditions, and thus a new era of more restrictive policy, we would argue that it would merely be moving away from “emergency” monetary policy to one of extremely-easy policy. That is a more appropriate stance for an economy that is operating at a high level in a world of moderate global growth.

The communication, while disappointing to many, nevertheless shows a Fed that is going to be gradual and deliberate over the coming couple of years. In fact we would not be surprised if this Fed did not move for a while after its initial hike, and it will continue to be very sensitive to the data when considering any changes to the trajectory and level of rates going forward.

It is very clear that the Fed's monetary policy this upcoming cycle will be nothing like the historic tightening cycles of the past in terms of the consistency of movement at each meeting, or the long-term trajectory of significant rate rises. It will be a very deliberate, gradual, and potentially replete with a paused set of movements, all of which will be designed to both soothe markets and judge the influence of policy changes as they occur.